Discount retailer Aldi will increase its capital investment in Australia to more than $2.5 billion after deciding to expand from the eastern states into South Australia and Western Australia.

The move will increase pressure on Woolworths,
Coles
and independent retailers.

Aldi Australia managing director Tom Daunt said the company would invest more than $500 million building two distribution centres to support 40 to 45 stores in South Australia and 60 to 70 stores in Western Australia.

The move west comes 12 years after the German-owned retailer opened its first Australian stores.

“We’ve had to reach a critical mass to afford to invest in other markets but we’ve reached that point and we’re happy to bring Aldi to Western Australia and South Australia," Mr Daunt told The Australian Financial Review.

“We’re proud of the offer we’ve been able to put out there to grocery buyers on the eastern seaboard. The benefits we bring to consumers are very established and well understood not only by our customers but by government and other agencies," he said. “We’d simply like to extend that offer to as many Australians as we can."

However, Mr Daunt said it could be “several years" before Aldi was ready to commence retail operations in the west.

“We need to acquire distribution centre facilities to support the retail operations and start working with the state governments and property industry to do that," he said. “We also have to get out there and acquire a pipeline of stores ... I suspect it will take some years to develop."

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Aldi would also continue to grow its store network on the eastern seaboard, where it opened its 300th store last week.

Aldi has been one of Australia’s fastest growing retailers, opening between 20 and 25 stores a year since entering Australia in 2001.

It now accounts for about 7 per cent of the national grocery market or 10 per cent in the eastern states.

Sales last year are believed to have exceeded $4 billion, making Aldi as large as Wesfarmers’ Kmart or Woolworths’ Big W chains.

Aldi’s longer-term aim is to have 500 or 600 stores in NSW, Victoria and Queensland, although Mr Daunt says these targets will only be achieved if planning and zoning regulations are changed.

Aldi’s expansion will place new pressure on Woolworths, Coles and
Metcash
’s IGA retailers in South Australia and Western Australia, which have to date escaped competition from global discounters Aldi and Costco.

In the eastern states, the major chains have been forced to lower prices and increase their range of private label groceries to better compete against Aldi.

A basket of mainly private label groceries at Aldi is on average 25 per cent cheaper than a similar basket of branded groceries sold in
Woolworths
and Coles, according to a recent Choice survey.

“When Aldi stores open we have a positive downward effect on grocery prices," said Mr Daunt. “Even those who don’t choose to shop with us benefit because other supermarkets sharpen their pencils."

Aldi’s offer in the west will be similar to that in the east, where it sells a range of 1350 mainly private label groceries, a limited range of national brands and non grocery merchandise. Its stores are about 1500 square metres, less than half the size of a full-line supermarket. Because of its limited range, the retailer encourages independent retailers such as butchers and greengrocers to open adjacent stores. For these reasons, Aldi may find it easier to secure suitable sites and achieve planning and zoning approvals.

However, Mr Daunt renewed calls for state governments to ease planning and zoning regulations. “It’s the role of government to create the right conditions for business not to give handouts for business,’ he said.